The spread on Galaxy’s bonds, at about 250 to 350 basis points, is sharply below the spread of about 700 to 800 basis points on comparable dollar-debt issues in the secondary market, according to data from Knight Capital Asia. (The spread refers to the difference in returns between a high-yield bond and an investment-grade corporate or sovereign bond. A basis point is one-hundredth of a percentage point.)

Christopher Lee, director of corporate ratings at Standard & Poor’s in Hong Kong, said B-rated Chinese property companies can expect to pay yields of between 13% to 14% in dollar-denominated debt.

“Investors are very yield-hungry,” said a banker familiar with the deal. “They can buy these bonds, or leave their yuan in the bank for 0.1% interest.” He said demand was particularly strong from institutional buyers and private banks.

Hong Kong officials are speaking out in defense of the territory’s U.S. dollar peg again, following a huge month-on-month jump in yuan deposits in the city.

Speaking at a forum on Wednesday, Hong Kong Monetary Authority Chief Executive Norman Chan drove home the point by laying out four criteria he said would have to be met before Hong Kong would consider cutting loose from the U.S. dollar.

The hottest currency play of 2010 may have been for one of Asia’s least-recognized currencies: the Mongolian tugrik. The tugrik, also known as the togrog, is up 16.7% so far this year, Robert Flint of Dow Jones Newswires reports. That makes it the best-performing currency against the dollar in 2010.

As his column notes:

“The currency is free-floating, and the capital account is open,” so investors could have pocketed real returns, George Saravelos, strategist at Deutsche Bank, wrote in an email report.

But any trader who made money on the tugrik’s climb would have indeed been far-sighted and even well-traveled. “I’ve never heard of it, never seen it traded anywhere,” said Brian Dolan, chief currency strategist at Gain Capital. “I honestly think you have to go there to a bank and exchange it.”

The tugrik isn’t a household name, but investors in Hong Kong’s stock market will certainly be familiar with the Mongolia story. The country’s vast deposits of gold, copper, iron ore, coal, uranium and other mineral resources is sparking huge interest as a play off China’s growth.

For even more indication that there’s no stopping the demand for yuan in Hong Kong, Hong Kong Monetary Authority data show that yuan deposits here grew 45.4% in October from the month before to 217.1 billion yuan ($32.59 billion). Total remittance of yuan for cross-border trade settlement also surged, more than doubling to 68.6 billion yuan in October from 30 billion yuan in September.

The amount of yuan on deposit equals 3.6% of total deposits in Hong Kong, and is still well below other deposits that are neither in Hong Kong dollars nor U.S. dollars combined, which make up 11.2% of foreign currency deposits.

How low? In bond-market terms, these are sweet discounts. The Ministry of Finance issued three-year bonds with a 1% rate. Compare that to the 3.2% it has to pay to raise yuan, also known as renminbi, on the mainland. The five-year bonds went for 1.8% versus 3.7% on shore, and the 10-year vintage went for 2.48% versus 4% back home. A separate $3 billion slice of two-year bonds reserved for retail investors will yield a slightly more generous 1.6%.

Financial Secretary John Tsang came out in support of the dollar-peg on Monday, echoing recent comments made by the chief executive of the Hong Kong Monetary Authority.

Tsang told lawmakers that de-pegging the currency from the U.S. dollar would simply lead to further inflows of speculative money betting on the local currency’s appreciation. He added that Asian economies which have floating exchange rates are also facing difficulties managing the effects of asset price inflation.

The U.S. construction-equipment maker’s fund-raising plan follows on a 200 million yuan bond issue that McDonald’s Corp. sold in August in Hong Kong.

Caterpillar’s decision shows how companies are seeking to capitalize on pent-up demand for yuan debt in Hong Kong, where the Chinese currency has been building up steadily in the territory’s bank accounts amid expectations that its value will appreciate.

Fidelity International’s star fund manager Anthony Bolton warned Monday to expect the unexpected in Hong Kong amid rising tensions between its currency ties to the U.S. and its economic ties with China, but stopped short of predicting an end to Hong Kong dollar’s longstanding peg to the greenback.

“Things that have never happened before in Hong Kong could happen,” he said during a speech at the Foreign Correspondents’ Club in Hong Kong.

Mr. Bolton described Hong Kong as an epicenter between the tectonic plates of the developed world and China.

The latest offshore yuan bond to launch in Hong Kong is adopting several bells and whistles aimed at helping the fledgling market for these securities develop.

For one, the eight billion yuan (about US$1.2 billion) of bonds announced Monday by China’s Ministry of Finance will be the first sovereign yuan issuance in Hong Kong with maturities of three, five, and 10 years. Ten-year sovereign bonds are typically the most widely traded securities and are frequently referred to as benchmarks.

Offering longer-dated debt also aids the creation of a benchmark yield curve, giving investors a fuller view of how the market views the underlying credit. Chinese sovereign debt was sold in Hong Kong for the first time in September 2009, in an issuance totaling six billion yuan with maturities of two, three and five years.

In another sign of the expansion of offshore finance business involving China’s currency, funds that invest in yuan debt are starting to come to market.

Hong Kong asset-management firm Income Partners says it is launching a fund that invests in investment-grade yuan-denominated fixed-income instruments, as well as less-exciting products such as certificates of deposits.

About Exchange

Exchange is The Wall Street Journal’s place for inside news, insight and ideas on Hong Kong’s business and finance community. Write to us at hongkong@wsj.com or follow Exchange on Twitter and Facebook.